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The value of switching costs

  • Biglaiser, Gary
  • Crémer, Jacques
  • Dobos, Gergely

We study a dynamic model with an incumbent monopolist and entry in every subsequent period. We rst show that if all consumers have the same switching cost, then the intertemporal pro ts of the incumbent are the same as if there was only one period. We then study the consequences of heterogeneity of switching costs. We prove that even low switching cost customers have value for the incumbent: when there are more of them its pro ts increase as their presence hinders entrants who nd it more costly to attract high switching cost customers.

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File URL: http://idei.fr/doc/by/cremer_j/value_oct2012.pdf
File Function: Forthcoming in "Journal of Economic Theory"
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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 596.

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Date of creation: 03 Feb 2010
Date of revision: 30 Oct 2012
Publication status: Published in Journal of Economic Theory, vol.�148, n°3, mai 2013, p.�935-952.
Handle: RePEc:ide:wpaper:22317
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